For this unit you will need a calculator

OCR GCSE Business (1-9)

Business 1 (01)

2.4 The marketing mix

From the OCR specification

• The 4 Ps of marketing and their importance

• Product

– Design, invention, innovation

• Product stages of the lifecycle

– Introduction, growth, maturity, decline

• Pricing methods

– Skimming, cost-plus, penetration, competitor, promotional

From the OCR specification

• Promotion – point of sale

– Price reductions, loss leaders, competitions, free samples

• Promotion - advertising

– Social media, websites, print media, television, radio

• Place – distribution of products and services

– Digital and physical distribution channels

From the OCR specification

• How the 4 Ps of the marketing mix work together

• The use of the marketing mix to inform and implement business decisions

• Interpretation of market data

– Changes in demand, target market and market share, changes in product and effects of promotion

Worksheet

Lesson objectives • To be able to understand the importance of

the 4ps of marketing

• To be able to identify how the 4Ps of marketing mix work together

• To be able to understand how the marketing mix is used to inform and implement business decisions

• To be able to calculate and interpret market data

Starter

• What was the last item you bought?

• Where di you buy it from?

• How much did it cost?

• Was it on offer (like a meal deal)?

TO BE ABLE TO UNDERSTAND THE IMPORTANCE OF THE 4PS OF MARKETING

The 4Ps of marketing

• In order to get customers to buy a product, a business needs to make sure it is the:

• Right product (Nike Air Jordan 5 Retro)

• Right place (www.nike.com)

• Right price (£160)

• Right promotion (Free postage and no hassle returns policy if they don’t fit)

PRODUCT

What is a product?

• A product is anything which satisfies customers’ needs and wants, and could be wither a good or a service:

• Goods – physical products like the Nike Air Jordan 5 Retro

• Services – intangible products like car insurance or a haircut

Design

• Pace of technology and dynamic markets with ever changing trends means that businesses need to develop new products just to survive

• This is good news for customers as we get more choice of products

A woman trying to pick from the hundreds of varieties of yoghurt for sale in a supermarket

Design

• A business will invest in R&D this means research and development

• When designing new products they will have to consider CAFEQUE – Cost; will the product be value for money? – Aesthetics; will the product look good – Function; what the product actually does – Ergonomics; if the product is easy to use – Quality; is the product made of good quality materials – Use; who is the product aimed at? – Environment; will the product be easy to recycle

Invention

• An invention is a process or device that has been first thought of

• At this stage the new product may just be an idea or an early prototype, so it is called an “invention”

Invention

• This is Art Fry – he invented the post-it note by accident

• Originally it was called the press and peel

• It was yellow as he had yellow paper to hand

• He invented it to keep the page open in his hymn book

Invention

• In 1946 Earl Tupper invented plastic containers called Tupperware from recycled plastic from the oil refining industry

• In the 1950s it was popular to have a tupperware party

Invention

• Charles Strite invented the pop up toaster in 1921

• It sold originally as the toastmaster

• He invented it because he was fed up with burnt toast done under a grill

Innovation

• Innovation is the whole process of designing inventing and testing a product to take it to market

• Innovation is when an invention is ready to go to market and for customers to use it

• Watch this video and see if you can decide if the product is an invention or an innovation

• Website for the eggxactly

PRODUCT STAGES OF LIFECYCLE

Draw a product lifecycle

Time

Reve

nu

e £

Product life cycle

Introduction

Growth

Maturity

Decline

Time

Reve

nu

e £

Introduction

• The introduction phase will involve high costs in research and development and the product may have been test marketed before launching, so profits may be negative

• Sales will be low as customers may to yet be aware of the products

• Advertising will be informative to let customers know about the product

Growth

• Growth phase products are enjoying rapid growth in sales and profits

• At this stage the customers are aware of the product and demand is high

• A business may advertise the product to take advantage of the high demand

Maturity

• Maturity phase products face intense competition now all the producers have joined the market

• Sales are high but profits are starting to fall

• Products have to be discounted to keep sales high

Decline

• Decline phase products may be limited in production

• At this stage profits and sales have fallen

• The product may be withdrawn from sale

• The business may decide to heavily discount to get any last sales before the product becomes obsolete

Can you guess what stage of the product lifecycle each of these products is at?

PRICE

Skimming pricing

• A product is priced high to begin with as it has a desirability factor (novelty) that will mean customers will want it when it is new

• The price can be lowered later on, but is high to start with to skim the profit while the product is “hot”

• Usually applied to technological items with a short product lifecycle (soon to be replaced with a new model) E.g. iphone6, ipad,

Cost – plus pricing

• Cost-plus pricing is worked out by calculating the total cost to produce the product or service and then profit is added on top

• Most often used in the food industry where it is easy to calculate the exact cost of ingredients

• There are two ways of doing this: – Add a profit margin in £ pounds

e.g. £27 – Add a % percentage mark-up on

top of the cost of making the product e.g. 25%

Companies like Pizza hut use cost-plus

Penetration pricing

• This means setting prices really low for a new product or service to encourage sales and to persuade customers to try the product for the first time

• Then when customers like the product and have to keep buying it, the business raises the price

• Low prices should gain the business more market share

Competitor pricing

• Some products or services are priced very similar to close competitors

• This means that customers will have to judge a product or service on “non-price” methods such as; quality of service, speed, extras

Promotional pricing

• A product or service is offered for sale at a cheaper price for a limited time

• Customers may also be offered free extras to encourage them to make a purchase

PROMOTION – POINT OF SALE

Price reductions

• Price reductions can be made to persuade consumers to try a product for the first time

• A business may also have price reductions to encourage sales levels and therefore increase revenue and profits

Loss leaders

• A loss leader is a product which is sold at below cost price (for a loss) to entice customers into a shop or to try the product

• An example is a printer which is sold cheaply, and then the customer will have to keep buying the ink

Competitions

• Competitions are a great way for a business to create a fan base, engage customers with the product and to spread the message about any special promotion

Free samples

• Free samples might be given out in magazines

• Free samples are sometimes available in shops and supermarkets

• This is a great way to get customers to try the product

PROMOTION – ADVERTISING

Social media

• Social media advertising is free or low cost so very cost effective

• All brands now need a web presence and can do this with SM

• Customers can be kept informed of new products

• Increases customer engagement with the brand

• Can show customer service with a quick response

Websites • Advertising on websites is one of the cheapest ways to

increase sales and inform customers

• The internet is currently a market of about 50 million customers, and is rapidly growing all the time

• Website ads can be interactive and are on show 24/7

Print media

• Print media includes;

– Newspapers, gives credibility

– Magazines, are entertaining

– Direct mail can be targeted at specific customers

– Catalogues can provide inspiration to customers

Television • TV adverts reach the largest audiences of all • TV advertising can be expensive for example the x factor

final for 30 seconds would cost £200,000 • Lots of specific channels helps to target customers for

example Dave and Shed • TV adverts are multi – sensory with sound and vision

Radio • Radio adverts are very cost effective, much cheaper

than other methods of advertising • Radio stations have very specific audiences so are

able to help businesses target the right customers • Radio adverts can be on the air quickly • Frequency of advertising sells

PLACE

Digital distribution

• Digital distribution is the delivery or distribution of media content such as audio, video, software and video games

• An example would be a digital download of a movie or a song

Physical distribution

• This means that goods are sent in more traditional channels

• For example goods ordered online are sent via Royal Mail or UPS

• It is the movement of goods from the supplier to the consumer

TO BE ABLE TO IDENTIFY HOW THE 4PS OF MARKETING MIX WORK TOGETHER

The marketing mix – how the elements work together Product PlayStation 4 Pro 1TB

Price £489.99

Place GAME online store, high street gaming stores

Promotion Comes with Dualshock Controller+ Wireless

Headset+ Dishonored 2+ Infinite Warfare & NOW TV

3 Month Entertainment

Bundle deal = added value for the consumer and

incentive to buy

TO BE ABLE TO UNDERSTAND HOW THE MARKETING MIX IS USED TO INFORM AND IMPLEMENT BUSINESS DECISIONS

Marketing mix - decisions

• A marketing manager wants to best satisfy their customers – so they will buy the product or use the service

• The marketing manager has four key decisions to make to help them satisfy their business customers Decisions about products

Decisions about what price to charge

Decisions about where to sell the product

Decisions about what promotions will best attract their target segment and persuade them to make a purchase

Price decisions

Place decisions

Product decisions

Promotion decisions

• Appearance

• Function

• Quality

• Brand

• Packaging

• Discounts

• RRP

• Finance options

• Location

• Transport

• Access to market

• Advertising

• Message

• Media

• Budget

• PR

Marketing mix business decisions

TO BE ABLE TO CALCULATE AND INTERPRET MARKET DATA

Changes in demand

• Demand for a product or service can be effected by:

– Incomes of the customers if you are paid less, you are unlikely to demand a luxury car

– Tastes, remember when everyone wanted loom bandz? Not so popular now.

• Other factors that effect demand:

– Prices of related goods • For example a coffee

machine with pods are related goods

• Xbox games for a console

• Ink for a printer

Target market

• A target market is the group of customers that would be satisfied by the products needs and so the business will “target” them with the marketing

• You are the target market for:

• Coca-Cola

• KFC

• Cinema films

• Vloggers

• Nintendo and Sony consoles

Market share • Market share is how

much of a market that a business has

• If the total market is worth £2,000,000

• (2 million)

• Market share may be shown as a value

• Business A has market share of £450,000

• Market share may also be shown as a percentage

• Business A has a 22.5% share of the market

A

Sample market share question

[1]

Sample market share - answer

Correct answer is: Option A 25% How to get that answer Add up ALL the shares to find out 100% £300,000 +£350,000 + £150,000 + £150,000 + £250,000 = 1,200,000 Then Divide firm E’s share by the total: 300,000 / 1,200,00 = 0.25 Then Multiply by 100 25%

Changes in product

• Changes in the product may create changes in demand

• Demand may increase if the product is seen by customers to have improved in some way

• Demand may decrease if the change is seen by customers to be negative

Toblerone changes its iconic shape and chocoholics go crazy – article HERE

Did demand increase or decrease as a result of

changes to this product?

Effects of promotion

• Good promotion can increase demand for a product

• Equally if a business gets their promotion wrong this can also negatively effect demand for the product

Sunny delight originally marketed as a heathy drink for kids, it was placed next to orange juice but was a totally artificial product The ad agency called it “an own goal” Judge for yourself watch the

video of the advert here

• 1)What are the 4P’s of the marketing mix?

• 2) What is a target market?

• 3) What is a market share?

• 4) What is digital distribution?

• 1) Product, price, place, promotion

• 2) Target market is the part of the population that the business is aiming its marketing at

• 3) Market share is the amount of the total market that the business has in sales, this could be in value or in %

• 4) Digital distribution is the delivery or distribution of media content such as audio, video, software and video games

Sample questions

Sample question 1

[1]

Answer question 1

Correct answer is:

Option A Decline

Sample question 2

[1]

Invention involves: A behaving dishonestly B creating new products C developing existing products D discrimination in the workplace Your answer

Answer question 2

Correct answer is:

Option B Creating new products

Sample question 3

Answer question 3

Correct answer is:

Option C 18.2%

The following three questions are based on the boohoo case study

• Boohoo was started in 2006 by two entrepreneurs who had the idea of starting a business where customers could buy the latest fashions online.

• Boohoo has expanded using organic growth, and has become a global online retailer of its own brand clothes, shoes and accessories. It now sells in over 100 countries. Boohoo charge for delivery. It has millions of website users per month.

• The target market for the Boohoo brand is men and women who are 16 to 24 years old and are fashion conscious. To reach this market, Boohoo uses social media. The business is active on Facebook, Twitter, YouTube and Instagram.

• Boohoo has also introduced apps for smartphones and tablets that allow customers to browse and buy products very easily.

Sample question 4

Analyse one disadvantage to a customer of Boohoo’s distribution channel. [3]

Answer question 4

Answers may include: • postage – will customers be willing to wait? • no shops – more difficult to return goods • website – requires the Internet, no way to ‘try’ product etc. • smartphone and tablet apps – size of screen, security of

payment etc. Exemplar response: There is no way for a customer to try the products before purchase with internet sales (1). This is particularly important when clothes are being sold (1) because the customer may be disappointed with the clothes and have to spend more time sending the clothes back to Boohoo (1).

Sample question 5

Boohoo uses social media to promote its products.

(i) State one advantage to a business of using social

media to promote its products. [1]

(ii) State one disadvantage to a business of using social media to promote its products. [1]

Answer question 5

Answer part (i)

• no guarantee that it will target the correct market

• easy to ignore – customers may ‘skip ads’

• many forms of social media – may be expensive to target all of them

• message may be distorted through social media users

• may require an employee to monitor social media response

Answer part (ii)

• cheap to use

• targets market segment - younger people/consumers

• trends/fashion often decided on social media

• larger audience

• quick to communicate

Sample question 6

Boohoo uses social media to promote its products.

Evaluate whether or not Boohoo should continue to use social media when promoting its products. [7]

Answer question 6

• See next slide for an example full marks answer from the exam board

Level 3 (5-7 marks) Good application, analysis and evaluation

Level 2 (3-4 marks) Good application, limited analysis and limited evaluation

Level 1 (1-2 marks) No evaluation at all, basic statements, chains of reason

Exemplar response question 6

Boohoo should possibly continue to use social media because it has obviously helped the business to grow. (AO2) However this depends upon whether Boohoo can continue to use social media at a low cost compared to other methods. (AO2) If other methods prove more effective and cheaper the business could switch methods to make more profit. (AO3a). Social media is the best way for Boohoo to target the younger audience, which is their target market (AO2). Using traditional media like newspapers might not work as their target audience don’t read them, and TV ads might be too expensive to be worth it (AO3a) If Boohoo do use social media, they must consider which sort of social media is the most appropriate (e.g. Facebook, Twitter, Instagram), (AO2) and which is the most cost-effective. To do this they probably need to do some research to find out which media their customers use the most.(AO3a) On balance, given that less and less people are reading newspapers and magazines, TV is expensive and there are so many channels, and radio may not reach their target audience, I think Boohoo should continue to use social media to promote its products. (AO3b) If the most appropriate social media strategy is selected, it should be able to reach their target audience, and if properly researched it should raise awareness of Boohoo in a fairly cost-effective way. (AO3b)They have already had some success using this strategy, and social media use is still on the increase. (AO3b)

Sample question 7

Answer question 7

(a) Candidate puts the decimal point in the incorrect place.

(b) Correct answer: Total market size = £1,500,000. Firm D’s market share = £150,000/£1,500,000 x 100 = 10%

(c) Candidate confuses the percentage with 360o

and erroneously calculates £150,000/360 x 100 = 41.66.

(d) Candidate assumes that the 150 in £150,000 equates to 150%.

Glossary

• Promotion; this is the communication between the business and the customer

• Social media; This means communicating with customers using online tools such as Facebook, Twitter, Instagram, etc.

• Market share; the value or percentage of the market sales that the business has e.g. that business has 25% of the whole market share

Revision Video

Resources written by Sarah Hilton for revisionstation.co.uk